For years, precious metals mining companies like Newmont (NYSE:NEM) and Barrick Gold (NYSE:GOLD) floundered in relative obscurity. Following the bubble bursting in the commodities sector early last decade, miners found themselves out of favor with the broader market cycle. Simply, with enthusiasm returning to equities following the Great Recession, NEM stock appeared anachronistic to Wall Street.
As you know, the novel coronavirus changed everything.
Despite extreme volatility in March when the U.S. was gripped in pandemic fever, NEM stock found its footing in April. Moreover, shares are carrying that robust momentum into May, suggesting further upside. Although I’m more of a cryptocurrency fan than a goldbug, you don’t want to ignore what the tape is broadcasting.
You don’t need to look far to understand that Newmont, Barrick and other major gold stocks have significant upside potential. In the latest jobless claims report, the Department of Labor revealed that nearly 3.2 million workers filed for initial unemployment benefits. Over the last seven weeks, more than 33 million Americans made jobless claims.
By all indications, the current numbers that we’re seeing today understate the economic damage that Covid-19 has inflicted. Millions of the recently jobless have likely attempted to seek benefits via their states’ antiquated communications channels, only to be rebuffed through backlogs and disconnects.
Additionally, as the unemployment line breaks dubious records, the prospects of job losses hitting higher-earning positions have clouded an otherwise optimistic look in the equities market. Most investors don’t like uncertainty, which is why NEM stock has jumped higher.
In my view, some modest exposure to gold makes sense as no one really knows what lies ahead.
NEM Stock Is No Fluke
Admittedly, while the narrative for gold makes sense, the sector does have a negative reputation. During gold’s last heyday, a deluge of conspiracy theories suckered in unsuspecting buyers. When the metals didn’t quite pan out as the conspiracists claimed, many left the gold market with bitter feelings.
In reality, they were simply too early to the game. No matter how fundamentally solid an investment is, market cycles more often than not can make or break it. It’s the reason why you don’t go sailing during a typhoon, even if you have a world-class boat.
Click to Enlarge
Source: Chart by Matt McCall Research Team
If you look at a 20-year chart of gold prices, you’ll notice that the 2000’s decade was characterized by an expansionary phase. Relative to other assets, gold was severely undervalued. Not surprisingly, NEM stock enjoyed a sizable move up as the underlying asset skyrocketed.
But as gold prices went parabolic, investors lost their appetite for pushing the yellow metal higher. Naturally, gold came crashing down and entered into a consolidation phase. This is a period of largely sideways trading as the market flushes out the weak hands. And because the 2000’s-era gold rush was so dramatic, the following consolidation phase was particularly long.
Today, I believe we’re transitioning back toward an expansionary phase, which obviously augurs well for NEM stock.
Again, fears over the economy are beginning to grip several investors. Further, the gold market is one of the few sectors that make intuitive sense.
Recently, the disconnect between the stock market and the labor market have left many folks confused. Part of the reason for this misalignment is that investors have nowhere to park their money in a subterranean interest-rate environment.
But fears that the disconnect could unravel has certainly bolstered gold prices.
Lack of Trust Is Positive for Gold
What I would recommend to readers is to not read too much into the granularity. Instead, it’s vital to recognize the bigger picture. Fear is at an all-time high and the “absurdity” that they see in the stock market is only fueling that anxiety.
Never mind whether the actions of the stock market is absurd or not — that’s not the point. So long as most investors believe this to be the case, this collective understanding is what will drive gold higher. That’s why you don’t want to ignore NEM stock.
The past is the past. We’re dealing with a completely new context right now.
At the same time, don’t go overboard. Use gold as a protective hedge against the present uncertainty. But do keep the powder keg dry for truly transformative investments, such as bitcoin and the cryptocurrency complex.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
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